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How to turn around a continent

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Prof Bonang Mohale is the chancellor of the University of the Free State, professor of practice in the Johannesburg Business School (JBS) College of Business and Economics, and chairman of both Bidvest Group and SBV Services. He is the past president of the Black Management Forum and author of Lift As You Rise.
Prof Bonang Mohale is the chancellor of the University of the Free State, professor of practice in the Johannesburg Business School (JBS) College of Business and Economics, and chairman of both Bidvest Group and SBV Services. He is the past president of the Black Management Forum and author of Lift As You Rise.

Will a Marshall Plan for Africa combined with an enormous free-trade agreement be the tonic for the economic ailments among the continent’s nations?


On 5 June 1947, US Secretary of State George Marshall announced the European Recovery Program (later known as the MarshallPlan) in a famous commencement address at Harvard University. He said that it was “logical” for the US to do whatever it could to restore the region to economic growth, “without which there can be no political stability and no assured peace”.

The plan, funded by the US government and administered by a Europe- wide commission, spent $13bn over four years and engendered the highest rate of economic growth (about 35% per year) in European history. When the work of the plan was finished, the economies of every Western European country had not just returned to pre-war levels of growth and economic development but surpassed them. Ever since, the Marshall Plan has been widely hailed as a triumph, an example of foreign aid as an enabler of economic revitalisation on a grand scale.

The plan had four components. The first involved the way aid money was gathered and spent. The second was the intensive involvement of the private sector. The third, each European government made economic policy reforms to support its domestic private sector. The fourth was a regional coordinating body that handled the distribution of funds among countries. At the completion of the Marshall Plan period, European agricultural and industrial production were markedly higher, the balance of trade and related “dollar gap” much improved and significant steps had been taken toward trade liberalisation and economic integration.

A Marshall Plan for Africa?

Although many disparate elements of Marshall Plan assistance speak to the present, the circumstances faced now by most other parts of the world are so different and more complex than those encountered by Western Europe in the period 1948 to 1952 that the solution posed for one is not entirely applicable to the other. Even if there exist countries whose needs are similar in nature to what the Marshall Plan provided, the position of the US has changed since the late 1940s too. The roughly $13.3bn provided by the US to 16 nations over a period of less than four years equals an estimated $143bn in 2017 currency. That being clear, during the past few years, some leaders have proposed it as a model for helping an entirely different region.

A call has gone out for a Marshall Plan for Africa. Extreme poverty, civil wars, and disease have ravaged much of the continent, leaving it poorer today than it was 20 years ago.

Sub-Saharan Africa in particular, home to two-thirds of the world’s least developed countries, is the focus of greatest concern.

Marshall’s logic applies just as well to Africa today – a thriving business sector is the key to improving political and social conditions and Africa today needs that sort of help.

The first Marshall Plan accomplished even more than its creators had hoped. If its successor is designed with the same conceptual base, then history could repeat itself in another part of the world. In 1960, the average output per worker of African countries was about the same as that of Asian economies. But the latter have since experienced a boom, whereas most African economies have stagnated or deteriorated. This lack of growth has reinforced war and dictatorship throughout the continent, just as it threatened to do in Europe after World War II.

Most of today’s ‘Marshall Plan for Africa’ proposals have little in common with the original Marshall Plan. But there are some important similarities between Europe then and Africa now. One is the sense of urgency. Africa is in danger of economic and social collapse, whereas Europe was under threat of Soviet advance. The second similarity is the recognition that the speed of implementation is critical – the original plan lasted only four years and most of the present- day plans aspire to offer help in a similar time frame. Third, the financial scale of the original Marshall Plan was like today’s proposals – both involved spending about $20bn per year in today’s dollars.

An effective Marshall Plan for Africa should concentrate exclusively on business development. As with the original, the business sector must lead it. Administrators and decision-makers should, once again, be drawn from that sector – present in flesh and spirit. Like the original, the plan should focus on business infrastructure. In Africa, that would mean not just hardware — upgrades in electricity distribution, telecommunications and transportation – but also a sort of software. This software would include financial institutions, business schools and associations, anti-corruption units and courts– all of which must be improved or created inmost African countries to enable their business communities to expand.

Trade

The African Continental Free Trade Area (AfCFTA) is a free trade area founded in 2018, with trade commencing as of 1 January 2021. It was created by 54 of the 55 African Union (AU) nations. It is the world’s largest free trade area since the formation of the World Trade Organization. It aims to bring together all 55 member states of the AU covering a market of more than 1.3bn people, including a growing middle class whose purchasing power is increasing, and a combined gross domestic product (GDP) of $2.6tr.

Estimates from the UN’s Economic Commission for Africa (UNECA) suggest that the AfCFTA has the potential to boost intra-African trade by 52.3%, and to double this trade if non-tariff barriers are also reduced. In March 2018, three separate agreements were signed, namely the African Continental Free Trade Agreement, the Kigali Declaration, and the Protocol on Free Movement of Persons. The three agreements work with the aim of reducing bureaucracy, harmonising regulations, and avoiding protectionism.

It will also expand intra-African trade through better harmonisation and coordination of rules across Africa. Also, of significant interest are the so-called ‘Phase II’ protocols, still being negotiated, which will include the investment protocol that will decide the important question of how intra-African investments are protected, whether intra-African investors will be able to start an investor-state dispute based on the protections contained in the treaty and if they can, in what forum. Investors will be able todo business on a single set of trade and investment rules across the African continent. They will also be able to take advantage of economies of scale and avoid the challenges of market fragmentation.

Whilst Covid-19 has had a significant impact on the economic fortunes of the AU, the fact that economic integration is progressing under AfCFTA and that international organisations are providing support, will likely fuel investor confidence in the long-term prospects of the region. Thereby accelerating intra-African trade and boosting Africa’s trading position in the global market by strengthening Africa’s common voice and policy space in global trade negotiations. Urgently implemented and with the singularity of purpose, the only logical outcome will be an integrated, prosperous and peaceful Africa, driven by its own citizens and representing a dynamic force in the global arena.

South Africa’s Covid-19 roll-out has demonstrated that we have finally reached a breaking point with the economy rapidly deindustrialising and on its knees; young black graduates roam the streets hopelessly; inequality has widened; racism is at an all-time high; public schooling is broken; public hospitals fail the poor and vulnerable; crucial infrastructure is in decay; lawlessness is epidemic; electricity supply continues to be uneven, unstable and unreliable; GDP grow this lower than the emerging markets, our BRICS counterparts and the rest of the continent; value of money is eroding; income, wealth and assets continue to be concentrated in fewer hands; our educational outcomes are not improving; lowest levels of confidence, trust and hope; etc.

What needs to be done is an absolute obsession with ethical, transparent, and finally accountable leadership.

We must prioritise good governance; implement land reform; deliver an inclusive economic growth; focused resource mobilisation; wealth redistribution; entrepreneurial revolution; job creation for oversized and outsized impact; and regional integration and cooperation.


Prof Bonang Mohale is the chancellor of the University of the Free State, professor of practice in the Johannesburg Business School (JBS) College of Business and Economics, and chairman of both Bidvest Group and SBV Services. He is the past president of the Black Management Forum and author of Lift As You Rise.

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This article originally appeared in the 14 May edition of finweek. You can buy and download the magazine here.


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